Stable crude prices have become a dream. Not only has the oil market turned volatile; oil prices have also risen alarmingly in the recent past. During the third week of August, the international crude prices had shot up to $49 a barrel - a level not seen during the last two decades.
It was in 1998, when the international crude prices had witnessed a nosedive and dropped to $10 a barrel, as a result of an oil glut in the international market.
The above-mentioned situation had hard hit the oil exporting economies and it was with the help of determined production cuts by the Opec members that the international oil prices had recovered and moved up to a reasonable level after some time.
Since then, the Opec and the non-Opec oil exporters had learned to maintain oil prices at a suitable level. Difficulty had been experienced in ensuring stable crude prices on one or two occasions.
For example during the period of global economic downturn triggered by the economic slowdown in the US at the end of 2000, the oil prices remained depressed due to falling world demand. Similarly, the 9/11 terrorist attacks sent shock waves to the oil market and international crude prices jumped to above $30 a barrel.
However, it was in the last couple of months when rising crude prices had assumed an alarming posture while the world watched helplessly. Even the Opec had no control over the spiralling prices.
It was pumping as much oil as it possibly could, but the market had turned wild and it could not be tamed. How could the above situation be explained? It was, no doubt, attributable mainly to the worsening security environments in Iraq, terrorist attacks on oil installations in Iraq and Saudi Arabia and the global scare about terrorism, at a time when the global oil demand had been rising.
The situation had of course been further complicated because of concerns regarding crude supplies from Russia and Nigeria and due to reports about falling inventories in the US.
Before March, 2003, when the Iraq war was looming over the horizon, economic writers had expressed the view that the Iraqi oil was the main culprit behind the war. According to reliable reports, Iraq had the world's second largest oil reserves after Saudi Arabia.
While preparations for the Iraq war were being made, planning for Iraq's post-Saddam oil industry was reportedly being contemplated by a coalition of neo-conservatives in Washington, whose main objective was to break the monopoly of Opec and bring down crude prices from their higher level.
It was believed that with a regime change in Iraq 3 to 5 million barrels per day of crude production could be easily added to the world crude supply. Later, after about 5 years or so, Iraq was expected to be able to pump up to 10 million barrels of crude per day which would help bring down crude prices from their higher level and ensure price stability in future.
However, now that more than one year had elapsed since the officially declared end of the Iraq war, the aforesaid objective had not been achieved. On the contrary, the international crude prices had risen to a record $49 a barrel and the future looked completely uncertain. One could conclude that war had not helped in solving the problem emanating from higher crude prices.
Future outlook: While the current global oil consumption was estimated at approximately 80 million barrels per day in which Opec's contribution was less than 30 million barrels daily, the US Department of Energy and the International Energy Agency were of the view that the global demand for crude oil was going to rise to 120 million barrels daily within the next 15 to 20 years, driven by increase in demand in the US and the emerging markets of South and East Asia. Demand in China was of special importance. It was growing at great speed and China was already the second largest consumer of crude oil, after the US.
The US Department of Energy and the International Energy Agency assumed that bulk of the supply required to meet the increased global demand for crude oil would come from the Opec whose production had to increase from the current level of less than 30 million barrels daily to an estimated 60 million barrels daily by 2020. Middle East (Saudi Arabia in particular) was to be the largest source of crude supply to meet the growing global demand in future.
The basis for this estimate was that nearly 63 per cent of the world's proven oil reserves was reported to be in the Middle East. 25 per cent or nearly 261 billion barrels were estimated to be in Saudi Arabia alone.
However, crude supply from the Middle East had remained stagnant for a long time and to develop the oil facility in the Middle East and fully utilise the potential there required massive international efforts.
The other important sources of crude oil were reportedly in Russia and Central Asian Republics. It may be recalled that Moscow's state-owned enterprises, at one time, produced more than 12.5 million barrels of crude per day before the disintegration of the Soviet Union. The aforesaid quantity was larger than Saudi Arabia's peak share in the world crude supply in recent years.
According to latest estimates, oil reserves in Central Asia were much larger than thought earlier. The oil field at Kashergan was estimated to contain 50 billion barrels.
Lukoil was reported to have recently discovered an oil field containing 5 billion barrels of proven reserves in the Russian part of the Caspian shelf. Other forecasts indicated that the Caspian shelf held as much as 75 billion barrels of oil.
However, the ability of Russia and Central Asian Republics to increase their oil exports was affected adversely due to lack of adequate infrastructural facilities. Pipelines and port facilities needed to be developed, which looked difficult without the active help and support of the international community.
As already stated in the preceding paragraphs, war has failed to solve the problem arising out of the higher crude prices. To achieve the objective of stable crude prices and strike a balance between the growing oil demand and stagnating supplies, the oil importing and the oil exporting countries would have to cooperate with one another, in order to facilitate the work relating to development of oil fields and building of infrastructural facilities. This could be possibly done only in an atmosphere of peace and harmony rather than war and strife.